Rule of 72
Definition
A quick mental math shortcut to estimate how long it takes for an investment to double. Divide 72 by your annual return rate. At 8% returns, your money doubles in about 9 years (72 ÷ 8 = 9). At 6%, it takes 12 years. At 12%, just 6 years.
Why It Matters
The Rule of 72 makes compound growth intuitive. It helps you quickly evaluate investments, understand the cost of fees, and set realistic expectations. It also works in reverse — divide 72 by inflation rate to see how fast your money loses purchasing power.
Example
At 7% annual returns: money doubles every ~10.3 years. Start with $50,000 at age 25. By 35: $100,000. By 45: $200,000. By 55: $400,000. By 65: $800,000. Four doublings turned $50,000 into $800,000 with zero additional contributions.